Used cars were always a major point of emphasis for Larry H. Miller.
Miller, who founded Utah-based Larry H. Miller Dealerships in 1979, expected his business’ used-to-new vehicles sales ratio to be at 1-to-1.
Miller died in 2009, but the company has continued to operate on his philosophy of the importance of used vehicles.
“The impact of a solid used-car operation within our dealerships is critical to our overall success,” Rod Rowley, who is vice president of operations for the dealer group, said via email.
Other dealership groups agree with that thinking. Penske Automotive Group reported record full-year and fourth-quarter 2018 adjusted results, and for the year those record results included units retailed, revenue and earnings before taxes. Used vehicles played a major role in that success.
“For the fourth quarter, our business was driven by continued growth in used vehicles, service and parts, the commercial truck operation and our equity investment in Penske Truck Leasing,” company chairman Roger Penske said in the company’s full-year and fourth-quarter 2018 earnings release.
Larry H. Miller and Penske Automotive are just two examples of how used vehicles are a big part of auto dealership groups’ current and future plans. Group 1 Automotive reported in its fourth-quarter and full-year 2018 earnings report that although it faced challenges in its new-vehicle business because of factors such as difficult sales comparisons to the Hurricane Harvey period in 2017, “our strong performance in used vehicles, parts and service, and F&I allowed us to deliver positive same store gross profit growth despite these very significant headwinds in our new-vehicle business.”
Lithia Motors is another example, with the company reporting that total same-store used-vehicle retail sales increased 7 percent for the year and 10 percent for the quarter, which helped contribute to the company’s record 2018 and fourth-quarter revenues.
Various trends in auto dealers’ sales focus show how dealers have increased their emphasis on used-vehicle sales.
Lower new-car affordability helps used
The used-car business remains robust, said Rowley of Larry H. Miller. As new-vehicle prices continue to climb, more consumers are turning to used cars.
“(Certified pre-owned) is a very good option for consumers and gives them the peace of mind that the car is covered by a manufacturer warranty and has been thoroughly inspected,” Rowley said, adding that late-model trucks and SUVs are Larry H. Miller’s top-selling used vehicles. “Many of the OEMs provide incentivized rates for consumers that makes the vehicle even more appealing. Again, as new prices climb, used trucks become more affordable for many consumers.”
Zo Rahim agrees. Affordability concerns are shrinking the pool of people who can afford to buy a new vehicle, said Rahim, who is part of Cox Automotive’s research and market intelligence group.
“If you look at the 2018 average new-vehicle payment, the payment came in at 10.2 percent of median household income,” Rahim said during a presentation at NADA Show 2019.
He added that shifting consumer preferences and changes in production to favor light trucks means consumers looking for affordable options like midsize and compact cars are looking to shop in the used-vehicle market, since that supply of vehicles is being restricted in the new-vehicle market.
How used-vehicle promotions, technology help boost sales
Larry H. Miller sees a “big spike” in business when it holds its four-day LHM1000 sales events on Memorial Day and Labor Day weekends, Rowley said.
“In-store advertising usually has two event-based sales using direct mail, e-mail blasts and outbound phone calls per month focused on driving used-car traffic to our stores,” he said.
Those promotions have probably played a role in Larry H. Miller Dealerships recently celebrating the milestone of selling 2 million retail new and used vehicles.
Technology and central appraisal systems can be a big factor in sales, too.
“Technology is and will continue to be an advantage for dealers,” Rowley said. “The amount of information available in regards to pricing and core inventory for a specific dealer is abundant.”
Rowley noted that Larry H. Miller Dealerships started a central appraisal team, which can provide an appraisal in less than 10 minutes for every dealership and every car the dealership appraises.
“The dealership can then decide whether to keep the car or sell it to Appraisal Central, which in turn places the vehicle in the dealership that can use the vehicle and maximize the sale,” he said.
Other factors driving emphasis on used
A January AuSM article highlighted Sonic Automotive’s emphasis on used vehicles through its commitment to standalone used-car stores. Sonic president Jeff Dyke went into detail on purchasing vehicle inventory and how establishing a rhythm is key in inventory management for these stores. He explained that the company makes projections for what it believes it will sell the following week and then buys according to that number.
“Everything is done by week, so that we keep a consistent flow of inventory,” Dyke stated in the article. “And that’s critical. Inventory management is imperative in order to be able to be profitable in a store like this.”
Standalone used-car stores have also been important for Larry H. Miller Dealerships, and that is further evidence of its investment in the used-vehicle side. It runs seven standalone used-vehicle operations.
“I would say we will continue to be open to new opportunities in the right place,” Rowley said.
He noted that Larry H. Miller Dealerships sold more than 53,000 used vehicles in 2018, representing a 4-percent increase over the previous year. That is a major piece of evidence supporting Rowley’s repeated statements of the importance of a strong used-vehicle operation to the business’ success.
“And with our reconditioning standards, it has a huge impact on our fixed operations and the gross generated there,” Rowley said.
He noted again that with the continued rise in new car prices, “the used-car business will remain a major focus within our dealerships.”
“A strong used-vehicle operation is crucial to the profitability of each dealership,” Rowley said.